A tricky problem of credit refund has compelled the diamond industry to request the government for a waiver on Goods and Services Tax (GST) on supply of stones meant for export between diamond exporters. This comes days after the GST Council created a separate 3 per cent slab for precious metals and diamonds, giving into industry’s demands for a lower rate.

The refund problem lies in the business model where polished diamond exports take place in Mumbai but their manufacturing takes place in Gujarat, which has exempted diamonds from the ambit of value added tax (VAT). This attracted diamond traders from across the country to set up manufacturing units in Su rat. In Maharashtra, for instance, the state levies 1.2% VAT on diamond, which is a considerable amount, given that diamonds are high-value produce. But, as GST kicks in from July 1, this preferential tax treatment will change and GST of 3 per cent will have to be paid on supply of polished diamonds. This is precisely where the conundrum lies.

GJEPC is suggesting to the GST sectoral committee on gems and jewellery at its meeting that diamond exporters should be exempted from paying GST on supply of stones between distinct identities (Co A & B) and separate identities (Co B and job worker) if the stones are meant for exports.Stones sold within India should not be exempt, said the official.

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